Many homeowners and those of us in the real estate and mortgage industries were practically holding our breath while we waited to learn whether the Mortgage Forgiveness Debt Relief Act was going to be extended. We can finally exhale because on January 1, 2013, the fiscal cliff deal extended it for another year. The extension means that homeowners who experience a debt reduction through mortgage principal forgiveness, foreclosure or a short sale will continue to be exempt from being taxed on the forgiven amount. If the act had not been extended, homeowners who had mortgage principal forgiven would owe income tax on the amount forgiven. (There are exceptions covered on the IRS website). Imagine being unable to afford your mortgage payments, selling your house through a short sale, and then receiving a letter from the IRS informing you that you owe income tax on the amount of debt that was forgiven. The housing market is on its way towards recovering and I feel that if this act was not extended, it would have been a huge setback in the recovery effort.
I learned about the extension through Kerri Ann Panchuk’s article on the Housing Wire website: Mortgage industry fares well in fiscal cliff deal
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